Sparing the rod could spoil the group

Marc Sidwell was Executive Editor for City A.M. and is the author with Anthony O'Hear of The School of Freedom (Imprint Academic, 2009).

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Marc Sidwell

IT WAS easy for shoppers in the UK to see what was wrong with Mothercare. Shabby stores and a generally low-end feel to the product range damaged the brand and left it open to competition from hipper contenders like Mamas & Papas.

Yet that ignored its performance outside the UK, which accounted for 54.5 per cent of revenue in its 2012 annual report: £672.4m, compared with £560m from the UK. Overseas sales were Mothercare’s secret weapon.

Not now. Its strength abroad may not be sufficient to support the firm while it battles to turn around the business at home. Too much of Mothercare’s foreign business is exposed to the Eurozone crisis. It has 420 stores out of its 1,378 stores worldwide located on the continent, compared with only 280 in the UK itself. In the UK, Mothercare has moved to cast off underperforming stores: down from over 400 five years ago, it aims for 200 by March 2015. In Europe, it is still opening stores: another 11 in the first half of this year.

If Mothercare can’t be as ruthless overseas as it has become at home, it will be in trouble. Thanks to the non-European stores, yesterday’s half-yearly figures showed growth continuing overseas, with worldwide network sales up 2.1 per cent and international retail sales up 10.8 per cent. But this is well short of chief executive John Calver’s plan, which calls for overseas revenue to grow at 20 per cent per year over three years.

The UK is still tough for Mothercare. UK retail sales were down 8.6 per cent over the half year, not helped by store closures. Yet the transformation at home is progressing, with the Jools Oliver-designed Little Birds range adding a welcome dash of quality.

Calver’s turnaround plan has already succeeded in slashing two thirds off the group’s pre-tax loss. Over the last six months, Mothercare lost a reported £27.4m. The year before it was £81.4m. That is a big step in the right direction. Now it has to get tough about refocusing overseas.

It also ought to have one eye on the possibility that the change in China’s leaders will end its authoritarian one child policy. That would bring a bonanza for any firms that are ready for the baby boom.